This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Delivered on:

29 November 2012

Introduction

Mr Speaker, I am pleased, ahead of the Energy Bill’s introduction later today, to publish the Annual Energy Statement.

It shows that this Government is making good progress towards our vision of a thriving low-carbon economy with secure energy supplies, and sets out an energy policy that is good for growth and good for consumers.

Alongside the Annual Energy Statement, I am publishing our Energy Security Strategy, the Statutory Security of Supply Report, a consultation on Electricity Demand Reduction, and more detail on electricity market reform. I am today laying copies of all these documents before the House.

Investment and growth

Mr Speaker, Britain’s energy sector is embarking on a period of exceptional renewal and expansion.

The scale of the investment required is huge, representing close to half the UK’s total infrastructure investment pipeline. The electricity sector alone needs investment of around £110 billion in the next decade: that’s equivalent to building Crossrail seven times over.

But the vast majority of this will not be taxpayers’ money, with Government subsidies targeted at levering in private-sector investment in low-carbon energy - so our plans are consistent with the Government’s overriding goal of deficit reduction.

Indeed, the energy sector can play a major role in stimulating economic growth, creating jobs, and positioning British companies for success in export markets.

One third of the UK’s economic growth in the last financial year is likely to have come from green business, and the UK’s low-carbon sector now takes a £122 billion share of the global market worth £3.3 trillion.

Many projects are shovel-ready, and they are spread relatively evenly through every nation and region of the UK. So the stimulus to the economy and to supply chains, and the job creation, can come at the right time - now - and in the right place - nationwide.

Low-carbon future

Those short-term benefits of our transition to a low-carbon future are followed by still greater ones in the longer term.

First, of course, it will help us meet our Carbon Budgets on the path to our 2050 emissions target, so that Britain will continue to play a leading role in tackling climate change.

Second, it will diversify our energy mix, improving our energy security and insulating households and business consumers from high and volatile fossil fuel prices on global markets.

And third, it will keep British companies at the forefront of the fast-growing global green sector.

The challenge

But investment on the scale needed will not happen under the current framework.

Industry and investors have told us very clearly that Government has to play its part - by creating a regulatory framework against which they can invest and by giving clarity on the level of incentives available.

We cannot afford to miss this opportunity. We need those shovel-ready projects to get underway now - and the energy security challenge we face is real, with fossil fuel imports set to increase, electricity demand to rise, and around a fifth of our existing power plant to close by 2020.

Our solutions

So, Mr Speaker, we propose nothing less than the biggest transformation of Britain’s electricity market since privatisation.

This follows agreement across the Coalition, not only on electricity market reform and the Energy Bill, but also on a real-terms tripling of the budget for support for low-carbon generation.

We need to improve revenue certainty for investors in low-carbon generation - including renewables, nuclear power and carbon capture and storage. So we will take powers through the Energy Bill to introduce Feed-in Tariffs with Contracts for Difference. This mechanism will give investors precisely the confidence they seek - and we have responded to the Select Committee’s concerns and will create a single counterparty for the Contracts for Difference.

We will also introduce a Capacity Market to ensure that there is sufficient gas generation to provide the backup and flexibility we will need. Gas remains a vital part of our energy mix, and we will support the exploitation of unconventional gas resources where it is economic and can be carried out with full protection of the environment. Our Gas Generation Strategy will be published alongside my RHF the Chancellor’s Autumn Statement.

We will legislate to allow Government to set, in the next Parliament, a 2030 decarbonisation target for the power sector - and in the shorter term we will introduce an Emissions Performance Standard. This will ensure that new coal plant can only be built with carbon capture and storage technology.

All these mechanisms will be supported by a robust, transparent institutional framework.

These reforms will maintain Britain’s energy security while providing a huge opportunity for jobs and growth. Competition for long-term contracts will drive innovation, raise productivity, and give UK industries a strong platform from which to compete internationally.

Consumers

Mr Speaker, consumer bills are one of my greatest concerns. They have been driven remorselessly up by wholesale fossil fuel prices: global gas prices were 50% higher in the five years to 2011 than in the previous five years - and they have continued to rise over the last year.

High energy bills can put huge pressure on households and businesses. So let me be very clear, especially given recent misleading reports in the media: Government policy is designed specifically to reduce consumer bills.

Of course we can’t control global commodity markets.

But we can and will put consumers in control by driving a wedge between wholesale energy prices and consumer bills. That’s why we propose to legislate in the Energy Bill to ensure that consumers are placed on the cheapest tariff that meets their preferences.

We can and will diversify our energy supplies: our policies stand to reduce the UK’s sensitivity to fossil fuel price spikes by around 30% by 2020, and by around 60% by 2050.

We can and will push energy companies to make switching easier and quicker - households can already save up to £200 per year simply by switching provider.

We can and will pursue savings wherever we can find them in the energy system - for example up to £3.5bn from offshore transmission coordination.

We can and will continue to place energy efficiency front and centre. Over 2 million insulation measures were installed in the year to June 2012. The savings are considerable: the half-million households who insulated their cavity walls in 2011 are saving around £135 a year each.

And last month we put in place the framework for the Green Deal, which allows households and businesses to install energy efficiency measures without any upfront cost, and to pay for them through the savings on their energy bill.

If you look ahead to energy bills in 2020, Mr Speaker, energy efficiency savings are set to outweigh - more than outweigh- the cost of supporting low-carbon electricity generation. The net effect of Government policies on energy bills is downwards, not upwards.

But of course vulnerable households need our help now - and they are getting it.

Over a million low-income pensioners will get £130 off their fuel bills this winter. And all pensioner households will get a Winter Fuel Payment: £200, or £300 for those over 80.

Energy suppliers provided around £250m of support under the Warm Home Discount scheme in 2011-12, assisting around 2 million low-income and vulnerable households.

The new Energy Company Obligation will channel £540m of Green Deal investment per year, reaching around 270,000 vulnerable and low-income households and those living in harder-to-treat properties by 2015.

And to help people better manage their own energy use, we will be rolling out smart meters across Great Britain: 53 million new meters installed by 2019, delivering an estimated £7.2 billion in net benefits to the economy.

Conclusion

Mr Speaker, the heated debate around energy policy can sometimes obscure what is in many ways a great success story for this country.

The UK already leads the world in offshore wind, and we are on track to meet our renewables targets.

Energy investment in Britain is running at a 20-year high, according to Energy UK.

We have the world’s first Renewable Heat Incentive.

This year’s offshore oil and gas licensing round received the highest number of applications since licensing began in 1964.

Our Carbon, Capture and Storage offer, including the £1 billion Commercialisation Competition, is one of the world’s most comprehensive.

We continue to make progress in international talks on climate change: I will shortly be attending the COP18 talks in Doha, working towards the genuinely global deal to which Durban opened the door, to be agreed by 2015 and come into force from 2020.

And now we are preparing a once-in-a-generation transformation of the energy landscape to bring on massive private-sector investment which will boost the economy, create jobs, and power Britain towards a prosperous low-carbon future.

Mr Speaker, The Government’s energy policy is good for the British economy, good for consumers, and good for the planet. And I commend the statement to the House.